Apple emphasizes its software amid unveiling of refreshed iPad lineup

Chris O'Brien and Salvador Rodriguez

SAN FRANCISCO — Thinner. Lighter. Free.

Those may have been the three most important words uttered at an event Tuesday where Apple launched slimmer versions of its iPad tablets with hopes of supercharging sales of a pioneering device that lately has been on a slide.

The Cupertino, Calif., tech giant also announced that buyers of its devices, including tablets, smartphones and computers, will get free of charge 20 of its popular apps that otherwise would cost more than $100. Piling on the incentives for consumers, it added that the latest version of its operating system for desktops and laptops would be available for download at no extra cost.

Taken together, analysts said, these announcements highlighted a new strategic direction for Apple. As it becomes harder to distinguish the features among competitors on the hardware side, Apple is emphasizing its software as a way to maintain a competitive edge.

"It's heralding the end of the PC era where hardware and software were different businesses," said Carl Howe, a Yankee Group analyst. "You no longer buy pieces. You just buy a product and it comes with everything."

Apple held its latest announcement at the Yerba Buena Center in San Francisco about six weeks after it trotted out its new iPhone 5s and 5c. Last month, Apple also released a radically redesigned version of its mobile operating system, iOS 7, which users have been embracing at a record clip.

Although the iPhone business now accounts for the bulk of Apple's revenue and profit, analysts had been growing more pessimistic about the company's iPad business.

Since its debut three years ago, the iPad has been an enormously disruptive force — Apple Chief Executive Tim Cook said Tuesday the company has sold more than 170 million units. Although sales of iPads consistently blew past most projections, sales of desktop PCs and laptops went into free fall.

But this summer, iPad sales showed some signs of cooling. Sales in Apple's third quarter fell to 14.6 million units, down from 19.4 million units the previous quarter and 17 million a year earlier.

Many analysts chalked up the decline to Apple's decision to wait several months longer than usual before introducing new iPad versions. Still, Ben Reitzes, an analyst at Barclay's Capital, echoed the estimates of many other analysts when he said in a note to clients that he believed the number of overall iPads sold annually will increase just 2% in Apple's fiscal year ending in September 2014.

The question heading into the event Tuesday was this: Can Apple give people a compelling reason to buy a new iPad?

Apple delivered a two-part answer. The first part was its fifth-generation iPad, now called iPad Air. The iPad Air is 20% thinner than the last iPad, and only two-thirds as heavy. In addition, the device will have Apple's A7 chip, which debuted with the iPhone 5s last month and promises greater speed.

Part two was the second generation of its iPad Mini, which now has the high-resolution Retina screen and the A7 chip.

Patrick Moorhead, principal analyst at Moor Insight & Strategy, said that he's impressed by the speed of the A7 chip. The combination with the lighter weight will make a powerful impression, he said.

"You're going to feel the difference," Moorhead said. "And you're going to see the difference."

Analyst Tim Bajarin said the combination of new specifications will give Apple an advantage over competitors who will need to find a way to match the power of the two much lighter gadgets.

"This gives me a desktop-class device," he said. "It's going to be the most powerful tablet on the market for at least six to nine months."

But perhaps just as critical as the new hardware is Apple's announcement that new Macs, iPhones and iPads would come with 20 of Apple's most popular apps that all have been redesigned for iOS 7 and Mavericks OS X, Apple's new Mac operating system. These include its iWork and iLife apps that let people edit documents, photos and music.

Bought separately just a few weeks ago, these apps would have cost more than $100. On top of that, Apple said Mavericks OS X would be available as a free download immediately. Apple sold the last update for $29.99. Microsoft Windows 8 can cost more than $100.

"We are turning the industry on its ear, but this is not why we're doing it," Cook said. "We want all of our customers to have the latest software."

Apple also announced some long-awaited updates to its MacBook Pros and said a new desktop Mac Pro, with a cylindrical design, will go on sale in December. Professional sound and video editors have been eagerly awaiting the new Mac Pro, which also will be notable because the company says it will be manufactured in the United States.

Most of the products and updates that Apple announced Tuesday are available immediately. The iPad Air will begin shipping Nov. 1. And the iPad Mini with a Retina screen will be available later in November, a move analysts said could indicate a challenge in securing enough screens.

Investors reacted cautiously to the announcements Tuesday. Apple's stock fell $1.49, or 0.29%, to $519.87. Apple's stock typically goes on a big run up before such events and then plunges. The stock fell almost 8% in the two days after Apple announced its new iPhones last month.